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INTERNAL STRUCTURE OF CHINESE CITIES

IN THE MIDST OF ECONOMIC REFORM
a a
Anthony Gar-On Yeh & Fulong Wu
a
Center of Urban Planning and Environmental Management,
University of Hong Kong, Pokfulam Road Hong Kong
Published online: 15 May 2013.
To cite this article: Anthony Gar-On Yeh & Fulong Wu (1995) INTERNAL STRUCTURE OF
CHINESE CITIES IN THE MIDST OF ECONOMIC REFORM, Urban Geography, 16:6, 521-554, DOI:
10.2747/0272-3638.16.6.521
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INTERNAL STRUCTURE OF CHINESE CITIES
IN THE MIDST OF ECONOMIC REFORM
Anthony Gar-On Yeh and Fulong Wu

Center of Urban Planning and Environmental Management
University of Hong Kong
Pokfulam Road
Hong Kong
Abstract: Socialist ideology, state control, and economic planning played significant roles
in shaping the internal structure of Chinese cities before the adoption of economic reforms in
1978. They led to an internal structure of Chinese cities that is quite different from that of
Downloaded by [New York University] at 02:24 08 May 2015
Western cities, with mixed land use and social areas formed mainly on the basis of the
locations of work places. Post-1978 economic reform has brought market mechanisms to
Chinese cities, and their internal structure now is undergoing rapid change. Urban planning
and development control in guiding these changes is urgently needed.
INTRODUCTION
The internal structure of a city is a broad concept that has different meanings to
different scholars. Bourne (1982) considers the internal structure of a city to have
three components: urban form, urban interaction, and organizational principles.
Urban form is equivalent to the physical arrangement of individual elements, such as
buildings and land uses. Urban interaction is the flow of goods and people among
different types of land use at different locations in the city. Organizational principle is
the mechanism that integrates the two into a whole city system. Thus, the study of the
internal structure of a city consists of two main objectives. The first is to identify the
spatial pattern of urban form and urban interaction, and the second is to discover the
organizational principles that explain how the spatial pattern is formed.
From the human ecology school to neoclassical urban economics, conflict and
urban managerialism, and the neo-Marxist approach (Lake, 1983), various para-
digms have been advanced in an attempt to provide explanations for the organiza-
tional principle of the spatial pattern of the internal structure of cities. The human
ecological approach emphasizes competition among different social groups (Burgess,
1925). Alonso's (1964) neoclassical economics reveals the role of rent in spatial
differentiation. Conflicts (Cox, 1978) and urban managerialism (Pahl, 1977) empha-
size the conflicts of locational interests and the role of urban managers in allocating
space. The neo-Marxist approach argues that the capitalist mode of production plays a
critical role in shaping the internal structure of Western cities (Harvey, 1978).
The process of forming the internal structure of a city is too complex to be
attributed to a single factor (Bourne, 1978). Chapin and Kaiser's (1979) conceptual
framework provides a way of looking at how activities are related to urban structure.
The internal structure of a city is the result of the interactions among three systems—
the activity system, the land development system, and the environmental system. The
521
Urban Geography, 1995, 16, 6, pp. 521-554.
Copyright © 1995 by V. H. Winston & Son, Inc. All rights reserved.
522 ANTHONY GAR-ON YEH AND FULONG WU
land use pattern and internal structure of a city are the result of different decisions and
actions of these activity systems.
Values and behavior patterns strongly influence the activity systems that affect the
internal structure of the city. Values and behavior patterns can change and, as a result,
the internal structure of a city changes too. Because of differences in values and
behavior patterns, the internal structure of preindustrial cities (Sjoberg, 1960) differs
from that of North American cities that Burgess studied. The socialist city (French and
Hamilton, 1979) is different from Western capitalist cities in many respects.
The internal structure of Chinese cities can easily be distinguished from that of
Western cities. However, because of lack of data and a theoretical framework, there
are few studies on the internal structure of Chinese cities. Ma and Noble (1986) have
appealed for research on "a Chinese model of urban structure" that might be
comparable to available studies of Western cities and to "the socialist city" in
particular. Study of the internal structure of cities is one important theme that China's
urban geography lacks (Pannell, 1990).
Because China is a socialist country, political economy has played an especially
significant role in shaping the internal structure of its cities since 1949, when the
Chinese Communist Party came to power. The importance of politics and public
policy is manifest in both the development of the urban system and the internal
structure of cities, especially before the economic reforms of 1978 (Lo, 1987). They
exerted a strong influence on the growth of urban population (Xu, 1984a), urban
system development (Chang, 1976; Xu, 1984b), and the provincial distribution of
urban population (Yeh and Xu, 1984).
The internal structure of cities, as the physical symbol of the prevailing social
structure, explicitly reflects the politics and public policy nexus. It was influenced
strongly by socialist ideology and the centrally planned economy before economic
reform in 1978 introduced new market forces into the process. Market forces will
become increasingly important as China carries out further reform and allows the free
market to play a more important role in its economy.
This paper discusses the changes in values and behavior patterns of the activity
systems in Chinese cities after the adoption of economic reform in 1978 and the
emerging new internal structure that has resulted from such changes. It also discusses
the likely internal structure of Chinese cities given further economic reform and
increases in the role of the free market economy, and opportunities and challenges
that the evolving internal structure will bring to urban planning in China.
FORCES SHAPING THE INTERNAL STRUCTURE

OF CHINESE CITIES BEFORE 1978
Before discussing the new forces that are shaping the internal structure of Chinese
cities since 1978, it is imperative to understand the earlier internal structure of
Chinese cities and the forces that shaped it. Otherwise, it will be difficult to
comprehend the significance of the changes that are taking place in the post-1978 era.
The following is a brief summary of the forces that shaped the internal structure of
Chinese cities before economic reform in 1978.
INTERNAL STRUCTURE OF CHINESE CITIES 523
Ideology
In socialist countries, ideology plays a crucial role as a social integrator providing

legitimacy to public policy. The ideology of socialist urban development is embodied
in the principles of urban planning. Socialist urban development principles state that a
city should be a place where the driving force of the planned economy, especially
heavy industry, will be accumulated and realized (Fisher, 1962). A city should be
centralized and highly standardized, with a uniform social organization. All citizens
should have equal access to facilities and services (French and Hamilton, 1979).
Industries and residences should be physically separated from each other by "green
belts," and they should be located sufficiently near each other to minimize the journey
to work. Service centers should be arranged to serve the entire city and to satisfy
people's daily requirements. Lo (1979) generalized the principles of classlessness and
urban uniformity, which involve standardization of housing, control of city size,
application of the self-contained neighborhood concept, and the laying out of the city
center for political-cultural-administrative uses.
State Control
The ability of the Chinese government to exert strong influence on urban develop-
ment comes mainly through population control and resource allocation. A household
registration (hukou) system was established in 1954 to stop unauthorized migration
from the countryside to the cities and to control the rampant growth of large cities. Its
designation of "agricultural population" (nongye renkou) and "nonagricultural popu-
lation" (fei nongye renkou) in conjunction with food rationing regulated monthly
quotas of foodstuffs, consumables, and consumer durables (Kirkby, 1985). The
household registration system required all neighborhood residents to register with
their local police station. In collaboration with lower-level civilian officials, the police
ran late-night neighborhood registration checks to ensure that people did not move
into the neighborhood without proper registration.
The state also controlled 90% of the jobs. Most employment opportunities—70%—
came from state work units. The proportion of urban individual workers decreased
from 40% to less than 5% as a result of socialist reform in the 1950s. Urban collective
units were encouraged as a substitute. From the 1960s to the 1980s their proportion
grew steadily to more than 20% of the work force (Fig. 1). Collective units played a
complementary role to state work units. Normally they produced parts and fittings for
larger state factories and provided daily services. Thus, the collective units did not
have much spatial discretion, but rather depended on state work units. The state
controlled the location of investments and people through the dominance of employ-
ment by the state work units.
The household system was effective in controlling the population in cities because
of the widespread rationing of foods and the state control of jobs and housing through
the late 1970s. Without a proper neighborhood registration, one had no access to
many highly subsidized and otherwise unavailable consumer necessities such as grain,
cloth, oil, pork, bean curd, and soap. The predominantly publicly owned housing was
Fig. 1. Employment structure of Chinese cities. Source: State Statistical Bureau (1992).
not accessible, nor were over 90% of all state and collectively controlled jobs (Whyte
and Parish, 1984). The household system was further tightened by a migration law in
1958 that limited the entry of peasants into cities, except those who had obtained
work permits from the labor bureau. The household registration system was effective
during the Cultural Revolution (1966-1976) in sending young people to the coun-
tryside. There was an absolute decrease in population of the cities (Yeh and Xu, 1990a,
1990b).
Economic Planning
Since the 1950s, China has operated under a centrally planned economy. Economic
plans provided great certainty for urban planning, and the latter became the spatial
expression of the former. The overarching characteristic of urban planning in China
was the dominant role of economic plans. The goals for urban planning, primarily
production and the requirements of industrial development, already had been estab-
lished by the economic plans. Spatial balance and conflicts were settled in the
economic plans as well.
Thus the pace and direction of development of a city were determined by the central
government and manifested in the economic plan. Economic plans have the power to
allocate funds, materials, workers, and land needed for any economic projects.
Projects have to be registered (lixiang) with the economic planning commission before
they can proceed. Because of a constrained urban factor market before 1978, workers
for urban enterprises were allocated through bureaucratic arrangements and were
tightly controlled by those channels (Perkins, 1990). Labor mobility was extremely
low, and there was no individual choice in residential locations.
The importance of economic planning is reflected in the urban planning principles
prevailing in the pre-1978 era. Urban planning was to serve proletarian politics,
socialist production, and the livelihood of the laboring masses (Ma, 1979). Urban
planning relied highly on the control measures provided by the economic plans. Many
tasks—such as construction of airports, roads, and residential communities—that
were carried out by urban planning in the free market in Western societies were
accomplished by economic plans in China.
The importance of economic plans for implementing the Party's strategic princi-
ples and policies is reflected in the two most influential textbooks on urban planning:
Principles of Urban Planning (Tongji University, 1984) and Urban Master Planning
(Song and Cui, 1985). National economic strategy was the basis of the urban master
plan, which guided the direction of urban growth, the size of the city, the general
layout, and the locations of key economic projects. Planners "should understand fully
about the intention of various leaders and relevant agencies from top to bottom, and
then according to socialist industrial allocation principles and the concrete local
situation seek to realize these intentions" (Song and Cui, 1985). The importance of
the economic plan also is emphasized in the Urban Planning Regulations enacted in
1984. These stated that urban planning should be based on national urban develop-
ment policy and national economic planning. Urban planning thus became an
extension of the national economic plan (Editorial Board of Urban Planning Forum,
1992).
INTERNAL STRUCTURE OF CITIES BEFORE 1978
Interwoven and mutually reinforcing socialist ideology, state control, and economic
planning produce an urban internal structure that is different from that of Western
cities. With population control and resource allocation through central economic
planning, the Chinese government was remarkably successful in shaping the urban
system according to its public policy and ideology. An outstanding feature was the
organization of the city through self-contained communities based on work units.

Work units, whose behavior was constrained by administrative order, ensured the
implementation of economic plans, whereas socialist ideology played the role of
integrator. Only through the ideology criterion could conflicts of interest be smoothed
and resolved, the power of the state consolidated, and the economic plan imple-
mented. The simple activity system before economic reform consisted mainly of state
work units and a small portion of collective enterprises. These activities interacted
with economic and urban planning to be located in the urban space and formed the
internal structure of Chinese cities.
Social Areas
Because the socialist city is supposed to reflect a classless society, there should be
no segregation or socioeconomic groupings. One part of the city may be different from
another, but such differences lie in land use, not the social class of the residents (Lo,
1979). However, studies of socialist cities show that social areas do exist, but they are
of a different nature than those of Western cities. Socialist European cities, for
example, have social areas (Weclawowicz, 1979), suggesting social inequality
(Szelenyi, 1983). Social areas were found in China, too (Xu, Hu, and Yeh, 1989), as a
result of the housing allocation system according to the production/work unit in
which one was employed. Since housing normally was provided near the work place,
residential locations were governed mainly by employment location. The characteris-
tics of social areas were determined by the location of the production units and the
population composition and characteristics of their employees.
Land Use
Two dominant components of land use in large Chinese cities—the built-up area
developed since 1949 and the older city cores—can be easily distinguished (Pannell
and Welch, 1980). In their study of land use in Beijing and Tianjin using Landsat
imagery, Pannell and Welch detected three zones: (1) continuously built-up, high-
density city core; (2) newly built-up, low-density area; and (3) suburbs and market
gardens. The pattern appeared to be a dense core surrounded by self-sufficient
satellite neighborhoods and communities (Pannell, 1977). The result is confirmed by
the conceptual models contained in Chinese urban planning textbooks (Song and Cui,
1985; Tongji University, 1984) and case studies such as the land use structure of
Nanjing (Cui and Wu, 1991) (Fig. 2).
The building density of the area developed after 1949 is generally low. The
emphasis on industrialization gave priority to industries to choose the most suitable
land. As socialist ideology forbade land rent, land was free in China, and industries
tended to claim more land than they needed. As a result, the proportion of industrial
land was relatively higher in China than it was in Western cities, generally occupying
about 25 to 30% of the total area. This figure could be even higher in some industrial
cities. The industrial land use shares are 34.2%, 30.5%, and 37.5%, respectively, for
Nanjing, Ningbo, and Jinan (Chinese Social Science Academy, 1992).
New workers' villages, in turn, were scattered around industrial plots. The structure
of the suburbs is rather self-contained (Lo, 1979; Pannell and Welch, 1980). The free
Fig. 2. Spatial structure of Chinese cities: conceptual model (top) and case study of Nanjing Municipality
(bottom). Source: Song and Cui (1985), Cui and Wu (1991).
land use system described here tempts work units to overoccupy land, and as a result,
there has been a rapid expansion of urban areas (Fung, 1981). This disorderly urban
sprawl could not be attributed to land speculation, the spread of middle-class
suburban residence, and an increase in private vehicles as it might be in capitalist
cities. Urban sprawl in China was caused by rapid industrialization and the rent-free
land system.
The intensity of land use also did not reflect its rent-paying capacity (Li and Chu,
1987). In the central area, it was generally low because most decisions were made by
administrative bureaus and factories, and the demand for office space was low. The
central areas of Chinese cities usually were not occupied by business headquarters,
but by public squares, statues, and administrative buildings—i.e., symbols of socialist
politics.
Service Facilities
The organization of urban space was based on work units similar to "military
camps" (Xie and Costa, 1991). The design of urban space traced its origins to the
imperial city that was surrounded by walls. Palaces and ceremonial and administra-
tive buildings concentrated in a "forbidden city," whereas common people scattered
outside. The Yamen (government offices) rather than the market dominated the
central area. The general rule for the layout was "palace in front, market behind." The
socialist city inherited these features. The central area was designated as an area for
public squares and administrative buildings. There was no CBD or concentrated area
of service facilities. Most daily services were provided by the work units. Because the
price of services was low, even below the costs of their provision, they were intended
not to generate profit, but rather to enhance the "material and cultural life of the
people," and were classified as "nonproductive investment." Such investment usually
was allocated together with "productive investment" in projects that were related
directly to production. As a result, some service facilities were owned and managed by
work units, whereas others were operated by city governments. Municipal service
facilities were organized in a hierarchy, from city to residential districts to neighbor-
hoods (Kwok, 1981). In the planning of residential communities, planners would
follow a certain standard for the provision of service facilities, stating the kind and
number of facilities be provided to residents. The standard was set by design institutes
and approved by the construction committee.
ECONOMIC REFORM
The entire country—and the internal structure of cities—changed with the adoption
of economic reforms in 1978. In December 1978, the Third Plenary Session of the
Eleventh Central Committee of the Chinese Communist Party (CCP) declared its
intention to undertake reforms and to open China to the outside world. This involved
reducing the dominance of central state planning, permitting a more market-led
economy, and adopting an "open-door policy" to open China to the world market and
foreign investment. Not only was the economy opened to foreign investment and
market processes, but the private, individual economy (geti jingji), with individuals
owning their means of production and earning their living through their own labor, and
the commodity economy (shangpin jingji) were reintroduced. Economic reforms

started in rural areas and since 1984 have been introduced in urban areas.
The same meeting in 1978 also stated unequivocally the Four Cardinal Principles
of the Party: "We must keep up the socialist road and adhere to the people's
democratic dictatorship, to the leadership by the Communist Party of China and to
Marxism-Leninism and Mao Zedong's thought" (Jiang, 1992). The process of reform
shows its dual nature. On the one hand is adherence to the socialist system, and on the
other is a change from a planned economy to a "planned economy with market
components" and finally to a "market economy." The combination reached its climax
in the 14th National Congress of the Communist Party of China in October 1992,
which announced "the acceleration of economic reform while establishing a socialist
market economy" (Jiang, 1992).
Rural Reform
The early reforms affected mainly the rural areas, where communes were replaced
by a production contract household responsibility system. Rural lands are distributed
to households according to their household size, and each household bears sole
responsibility for fulfilling a predetermined production quota. After meeting the
quota, households are free to produce whatever they like and can sell their products on
the free market. Households also can contract to run agricultural production units
such as duck farms, fish ponds, or orchards. This system has replaced the original
commune system where farmers worked together and were paid according to the
number of work points they accumulated. This reform has aroused the farmers'
enthusiasm because it provides more pay for more work. Rural production has
increased tremendously since its introduction. The number of "specialized house-
holds" that make use of their special production skills also has increased. Households
that prefer to engage in nonagricultural activities may sublease their plots to other
people. The surplus labor freed from agriculture by the increase in farmers' productiv-
ity has stimulated the development of small enterprises in rural areas, giving rise to
rural urbanization.
The Open-Door Policy
The 1978 economic reforms led to the utilization of more foreign investment and
the development of special economic zones and special districts to attract it. To attract
and manage foreign investment effectively, four special economic zones (SEZs)—
Shenzhen, Zhuhai, Xiamen, and Shantou—were established in 1979, offering a range
of inducements to foreign investors, including tax "holidays," early remittance of
profits, and good infrastructure. The initial objective of the SEZs was to produce goods
for export to earn foreign exchange. They also acted as social and economic
laboratories where foreign technologies and managerial skills might be observed (Jao
and Leung, 1986).
Despite some criticisms, the SEZs were considered to be successful and were used
as a model for economic development in other cities. In 1984, 14 coastal cities were
opened for investment. These "open cities" were to offer concessions to foreign
investments similar to those of the SEZs, although they did not receive the same level
of central government funding for infrastructure development.
In addition to special economic zones and coastal open cities, other regions were
granted special status for foreign investments. In 1988, three "open economic
regions" were designated: the Chang Jiang (Yangtze) Delta Economic Region
(around Shanghai), the Zhujiang (Pearl River) Delta Economic Region (around
Guangzhou), and the Minnan Delta Economic Region. The designation of special
economic zones, cities, and regions along the coast is understandable, because they
are more accessible to foreign investment than interior cities and regions. The open
coastal cities and the SEZs also were traditional ports in which foreigners had lived
and traded with China. There have been recent attempts to spread the benefits of the
open-door policy from the SEZs to other parts of the country.
After the adoption of the open-door policy, from 1979 to 1985, $27 billion (U.S.) in
foreign capital has been utilized (Phillips and Yeh, 1990). Of this, 72% has been in the
form of external loans, and 27.8% has been in the form of direct investment. Hong
Kong provided most of the direct foreign investment, followed by Japan and the
United States. Because of the policy of designating SEZs, coastal open cities, and open
economic regions along the coast, foreign investments are unevenly distributed
spatially, being highly concentrated in the coastal provinces, particularly among large
cities such as Beijing, Shanghai, and Guangzhou and the special economic zones of
Shenzhen and Xiamen (Phillips and Yeh, 1990).
Urban Reform
Urban reform was launched officially by the Third Plenary Session of the Twelfth
Central Committee of the Chinese Communist Party in October 1984, by adoption of
the reform of the economic structure. An attempt to introduce to the urban sector the
successful rural economic reforms, with incentives to individual efforts, consisted of
expanding the autonomy of enterprises, providing material incentives to workers,
loosening planning and price controls, replacing state investment with credit finance
for industrial development, encouraging small-scale private enterprise, and allowing
market forces to determine the distribution of goods and services. Enterprises were
allowed to retain and allocate investment capital, plan production, hire and dismiss
employees, and determine bonuses and prices. These reforms were aimed primarily at
enterprises, but because most of the enterprises are located in the urban areas, they
were referred to broadly as "urban reform."
Prior to the official announcement of the 1984 urban reform, Shashi in Hubei
Province was designated as the first pilot city for the implementation of comprehen-
sive economic structural reforms in July 1981. Since 1981, 74 cities, including
Chongqing, Wuhan, Shenyang, Dalian, and Nanjing, were approved for economic
reforms. Twenty of them experimented with institutional reform, 27 with banking
reform, 14 with housing-system reform, and 13 with market-sponsored production
reform (State Statistical Bureau, 1990).
Housing Reform
Housing has been heavily subsidized. Since 1982, a new policy of "commercial-
ization of housing" (zhufang shangpinhua) has been gradually introduced, with
"purchasers" being granted the rights to use premises (Lin, 1986). In 1982, a
demonstration project for housing commercialization was initiated in four cities—
Changzhou, Zhengzhou, Siping, and Shashi—where a small number of new housing
units were sold to individuals. Under the housing commercialization scheme, an
individual pays one-third of the construction costs of a residential unit, with the
government and the buyer's working unit each paying an equal share of the remainder.
The amount paid by the purchaser goes to the state, which then reinvests it in the
construction of new housing. Since 1985, commercialization has been extended to 80
cities, including the three major cities of Beijing, Shanghai, and Tianjin (Fong, 1989).
The goal of housing commercialization is establishment an equitable and efficient
housing system; reduction in the amount of subsidies to those who can afford to do
without them; an increase in the sources of capital for the construction of more
housing; integration of housing and real property into the economy; improvement of
the residential environment through better maintenance by owner-occupiers; the
provision of choice in housing according to income, needs, and preferences; and
rationalization of land use by taking into consideration the economic value of land
in different locations. Housing commercialization occurred mainly in large and
medium-sized cities. The special economic zones have been pioneers in housing
reform (Phillips and Yeh, 1987).
Land Reform
Land is owned by the government and normally is allocated free of charge to users.
However, this has changed with the economic reforms. Several cities have started
charging land use fees, and land use rights can be transferred and sold (Walker, 1991).
Shenzhen started charging land use fees in 1981, Guangzhou in 1983, and Fushun in
1984. Most land use fees involve land to which foreign investment has been allocated.
In Shenzhen, an annual land use fee was levied according to the type of use, location,
and lease period (Yeh, 1985). Depending on the use, land was leased for a period of 50
to 70 years. The cheapest annual land use fee was for industrial use to attract foreign
investment in industrial development. Tourism and commercial land uses have the
highest land use fees. Special preferential treatment is granted to educational,
cultural, scientific, technological, medical, health, and public welfare land use.
Projects involving the most advanced technology and nonprofit projects may be
exempted from land use fees.
Further land reform was carried out by the Shenzhen SEZ, which proposed "Land
Management Reform in the Special Economic Zone" in 1987. Under this plan,
publicly owned land could be leased to developers through open auction or competi-
tive bidding. The maximum lease term is 50 years, renewable through negotiation
when the lease expires. Lessees were allowed to sell, assign, or transfer the land use
rights. The selling of land use rights through open bidding, which started in Shenzhen
in September 1987, allowed land use rights to be sold to a local company (Tang,
1989). The first land auction took place in Shenzhen on December 1, 1987.
A similar type of land reform in the sale and transfer of land use rights was carried
out in Shanghai and Haikou. The paid transfer of land use rights (tudi youchang
zhuanrang) was made official in the First Session of the Seventh People's Congress in
1987. The clause "the right to use of land may be transferred in accordance with law"
was added to Article 10, Section 4, of the constitution, which states that "no
organization or individual may seize, buy, or sell land or make any other unlawful
transfer of land." The amendment was approved by the National People's Congress on
April 12, 1988, opening a new era of lawful transactions in urban land. In addition, in
1988 the State Council announced "Regulations on Land Use Tax Collection in Cities
and Towns," which enables cities and towns to collect land use taxes. These measures
mark the end of the free use of land in China.
Prior to the introduction of the paid land use system, because land was allocated
free, land users often would try to acquire more land than they needed. It is hoped that
through the new system, land can be improved through the sale of land use rights
and the collection of land use taxes. This can help to strengthen the tax base for
constructing and maintaining the urban infrastructure.
NEW FORCES SHAPING THE INTERNAL STRUCTURE

OF CHINESE CITIES
Economic reforms, particularly the introduction of foreign investment, the com-

mercial economy, and private enterprise, have greatly influenced urban development
in China since they were adopted in 1978. Economic reforms have weakened the
pre-1978 mechanisms of population control and state resource allocation that were
effective in shaping urban development to a form that the government desired. The
household registration system has been relaxed, and people have increasing mobility.
The availability of a free market and the proliferation of individual enterprises outside
the state system also are rapidly eroding the household system, which was effective in
controlling population growth in the cities. The state has less responsibility for
providing employment and services. People can earn more in private enterprises and
enterprises involving foreign investment outside the state enterprise system. As a
result, the Chinese government no longer effectively controls urban development.
Diversified Investment Sources
Before the economic reforms, the state budget was the dominant source of
investment in fixed assets, making up 88.2% of total investment in 1957. The
percentage remained as high as 62.2% in 1978. However, it decreased dramatically, to
only 6.8%, in 1991 (Table 1). Collectively raised funds and foreign investment are two
increasingly significant sources (Fig. 3). Collectively raised funds are raised by work
units through various means, including short-term liabilities, bonds from staff (unlike
shares, which can be traded), and profits and funds that are obtained outside the
control of the economic plan—the so-called "funds outside the planning system"
(jihua wai zijin). Collectively raised funds can be used more flexibly than state
investment money.
The declining role of the state budget in investment in fixed assets leads to the
decentralization of decision making, both financially and spatially. The traditional
control of urban planning and urban development through the economic plans is
becoming less and less effective. Because large amounts of investment come from
collectively raised funds, industries and enterprises have more discretion in choosing
their location than before, based on maximizing profit.
TABLE 1.—STRUCTURE OF INVESTMENT—SOURCES OF FIXED ASSETS

(IN PERCENT) a
1957 1978 1980 1985 1990 1991
State budgetb 88.2 62.2 44.7 16.0 8.7 6.8

Domestic loan 11.4 1.7 11.7 20.1 19.6 23.5
Foreign investment — 4.2 7.2 3.6 6.3 5.7
c
Collectively raised - 31.9 36.5 60.3 52.4 52.3
Other — — — — 13.1 11.8
a
Fixed assets include equipment, factory buildings, and residential buildings. Raw and semi-finished
production materials and workers' salaries are not included.
b
The state budget is the budgetary expenditure that is controlled by the five-year and annual
economic plans.
c
Collectively raised funds refer to funds raised by work units through various methods. These funds
are outside budget control and subject to a relatively flexible audit monitoring.
Source: China Statistical Yearbook, 1992.
Fig. 3. Structure of investment: sources of fixed assets. Source: China Statistical Yearbook (1992).
Declining Importance of State Enterprises
Reforms have changed the economic structure of the cities. More people are
working in the tertiary sector and in non-state owned enterprises. With a rising living
standard and a need for a better network to sell the products of reformed enterprises,
the tertiary sector is growing rapidly. In the 74 cities surveyed by the State Statistical
Bureau, the tertiary sector increased from 19.1% of the urban GNP in 1978 to 32.6%
in 1988. Employment in the tertiary sector increased from 24.2 to 33.9% of the work
force. The economic structure has changed faster in the special economic zones,
where there are more free market mechanisms, than in other cities. In 1989, 45.9% of
the labor force was employed in the tertiary sector, as compared to 31.6% in the 74
economic reform cities and 36.7% in the coastal open cities.
Despite the existence of nonstate enterprises, the majority of people in the cities still
work in state enterprises (Fig. 1). There is only a slight increase in the percentage of
people employed by other kinds of organizations, such as individual enterprises and
enterprises with foreign investments. Considerable differences exist among cities
because of variation in levels of economic reform. There is a much higher percentage
of people working in nonstate enterprises, particularly individual enterprises and
enterprises with foreign investments, in the special economic zones than in other types
of cities. In the special economic zones, 29.8% of the labor force works for nonstate
and noncollective industrial enterprises and 18.9% for nonindustrial establishments.
In contrast, only 2.9% are thus employed in the coastal open cities, which are in turn
higher than the national norm. This is mainly because of the degree of economic
reform and the utilization of foreign investment in these cities, with more economic
reforms and foreign investment in the special economic zones.
Not only is the proportion of state enterprises declining as a result of the emergence
of multiple ownership, but services and welfare provided by state enterprises are
declining, too. Before economic reform, enterprises had to provide nearly all daily
services to their staff, including canteen, barbershop, kindergarten, primary and
secondary school, health clinic, and transportation. Now, instead of providing these
services themselves, state enterprises may lease out service facilities to individual
enterprises to achieve efficiency or simply reduce these services and rely more and
more on those provided by the city government.
Opening the Land Market
Prior to the introduction of the paid system, land uses were decided through the
central planning process in which there were negotiations and compromises among
various government hierarchies and agencies, including both land users and land
management organizations. Approval for land use could come either from munici-
palities or from the state. In the latter case, approval would be registered in the
municipalities. As long as land was allocated to the user, it was difficult to rescind the
right to use the land or to change the land use. Although in theory, land still belonged
to the state, in practice, the state had little control over it, especially its detailed use
once it was allocated to a user such as a work unit. It seems that the land users had
property rights over land, and could change land use whenever they wanted to. Land
was managed by type of work unit, not by actual type of use. For example, land
allocated to a factory was considered to be industrial land. The land parcel, however,
could be subdivided by the factory into manufacturing and residential areas. The use
was designed by the so-called "factory layout design," which had been practiced
since the 1950s. Main factors influencing layout design were the requirements of
production, such as the flow of materials and segregation of incompatible uses. Land
subdivision in the allocated land thus was outside the control of urban planning.
After adoption of the paid land use system, a land market has gradually been
formed. There are three basic types of paid land use systems, each with a different land
pricing system (Chinese Academy of Social Sciences, 1992). The first type is land
acquisition, in which the state acquires land collectively owned by farmers. Before
economic reform, the acquisition of rural land was simply a process of administrative
reallocation. The state normally had compensated farmers for the crops that they
cultivated. Perhaps the preferable method of compensation was for the state to
organize the farmers as state workers (nonagricultural population) and register their
households in the city. Since economic reform, the acquisition of land has become
more complex. For projects that do not belong to the state, the government is unlikely
to force farmers to surrender their land. Compensation can be arranged between users
and farmers. The standard set by the government becomes less and less effective, and
the price is set by the market forces of supply and demand.

The second type is land leasing, generally known as conveyance (churang) of land
use rights, which is the granting of the right to a user by the state to use a piece of land
through negotiation, bidding, and auction. The third type is land transaction, generally
known in China as the transfer (zhuanrang) of land use rights, in which the right to use
a piece of land is transferred from one user to another through payment. In China this
also is known as the secondary land market. Table 2 summarizes the characteristics of
the three types of land markets.
As a result of the new system of paid transfer of land use rights, a dual land market
system has been formed. On the one hand, land allocated before economic reform
requires a nominal land use fee annually. On the other hand, new land is acquired
through market prices, which can be very high. Still, some land uses—such as
administrative, cultural, military, and special uses—are allocated at a very low price.
The present land system in China is different from that in Western societies where
there is only one land market, with transactions carried out freely.
Urban land has only recently been valued in most Chinese cities. The difference
between land use fees charged in the urban fringe and those in the central area is
small, so that it is not a significant factor in a location decision. With increases in land
price, this may become more and more important in influencing location decisions. In
Shanghai, for example, urban land is divided into nine classes. Each class incurs
different land use fees according to different land use types. For commercial use, 60 to
100 yuan is charged per square meter annually for Class-I land, which is near the city
center, 8 to 15 yuan for Class-VII land, and 3 to 8 yuan for Class-IX land. The land use
fee is still very low compared to the economic returns in different locations. According
to an estimate of the annual economic return from land in Shanghai, Beijing, and
Tianjin (Liu, 1988), locational differences can be as high as 200 to 2,300 yuan per
square meter. At present, the land use fee does not fully reflect the actual economic
return. In the future, we may see a trend toward increasing differences in land use fees.
If land value in the old urban area reaches a sufficient price, urban redevelopment
will occur because the land value of existing old housing is rather low compared with
new housing or commercial buildings. Through redevelopment and increases in plot
ratio, real estate companies could sell more housing units after redevelopment and
might apply to the planning authority to change land use from old residential housing
to office or retail use. One major obstacle to urban redevelopment in Chinese cities is
the problem of relocating the residents, which is a heavy financial burden for the city
536
TABLE 2.—LAND MARKETS IN CHINA
Market type Participants Methods of transaction Price of landa
Land ownership Fanner (seller) Acquisition Acquisition fee

transactions State (buyer)
Primary market of State (seller) Conveyance (leasing) by
land use right User (buyer) • negotiation Negotiation price
• bidding Bidding price
• auction Auction price
Secondary market of Among users Relocation Compensation fee
land use right Barter with land for housing Price = housingprice a×
Sale of real estate Price = housing price - construction cost - interest-profit-taxes

Lease of real estate Rent = housing rent - depreciation - maintenance cost - management
Cost - insurance-interest-taxes
Transfer of developed land using Rent = shared profit or share dividend
land as capital
ANTHONY G
a
The authors believe that the price of land here is only for reference purposes. Because the land market is only in an embryonic stage, the price could not be
determined by formula, but rather should be in equilibrium with the operation of the market.
Source: Chinese Academy of Social Sciences, 1992.
government. However, after adoption of the land market mechanism, it is possible for
city government to cooperate with private and foreign investors to redevelop the old
urban area and reorganize the internal structure of the city for more efficient land use.
The new paid land use system has provided the city government with a new and
substantial revenue source that was not available in the past. Lands are leased to
foreign investors and local developers for industrial, residential, and commercial uses.
In Hainan Province, money obtained from the property market constitutes as much as
one-fourth of the total revenue (Zou, 1992). Revenue obtained was used to improve
urban infrastructure. Many cities (Guangzhou, for example) are using payments for
the transfer of land use rights to finance their subway systems. Developers are allowed
to develop residential and commercial properties at the ground surface above
underground [metro] stations, and the money obtained from such development is used
to finance part of the construction cost of the subway. As subway stations are a
convenient transport node, their land value is very high and in great demand.
As land now is valued, the city government is willing to invest in infrastructure to
improve its environment and accessibility so as to increase land value further. In the
past, the so-called "five connections and one leveling" (wutong yiping)—connecting
roads, telecommunication, water, electricity, and ports, and the leveling of sites—were
the main methods for providing a good investment environment for developing the
special economic zones (Yeh, 1985). These principles are actively applied in land
development in the cities of China. With better accessibility and formation, land can
command a higher price on the market. The provision of roads, water, electricity, and
telecommunications and the leveling of sites are labor intensive. As labor costs are
relatively low in China, the rate of return for site preparation is very good, given the
high land price that can be obtained from the market. Revenue from land now can be
used to fund infrastructure projects, such as roads and telecommunications, that were
not possible before the introduction of the land market. The introduction of the land
market thus has provided planners with the funding and opportunity to implement
plans that could not be implemented in the past because of the lack of funding.
Opening the Housing Market
Housing reform is a gradual process. Many theoretical controversies exist regarding

the nature of housing and the degree of housing subsidies in a socialist system. For
example, is housing a commodity? Does private ownership of housing breach the
socialist ideology? Is renting housing a form of exploitation? Government policies for
the real estate industry have been inconsistent, resulting in various forms of commer-
cial housing. Generally, commercial housing can be categorized according to whether
the units are sold in foreign currencies and whether the housing price includes the paid
transfer of land use rights. Types of commercial housing vary from city to city. In
Shanghai, for example, there are four main types of commercial housing: ordinary
commercial housing, overseas remittance commercial housing (sold mainly to over-
seas Chinese and their relatives), commercial housing financed by foreign investors,
and commercial housing on leased land under paid transfer of land use rights
(Table 3).
Despite housing reform, most people working in state enterprises and agencies still
depend on housing provided by their work units. Only a small proportion of the total
TABLE 3.—COMMERCIAL HOUSING IN SHANGHAI

538
Type: Ordinary commercial Overseas remittance commercial C o m m e r c i a l housing C o m m e r c i a l housing

housing housing financed by foreign under the system of paid
investors transfer of land use rights
Transaction methods Sold Sold Rented within lease term Sold or rented within term
Purchasers or tenants Permanent residents of Relatives of overseas Chinese who are Overseas Chinese Foreign government, district,
Shanghai permanent residents of Shanghai company, representative,
Foreigners, foreign com-
individuals
Work units registered in Overseas Chinese or foreigners who are panies for self-use
Shanghai permitted to live in Shanghai Overseas Chinese
Permanent residents of Shanghai who

have foreign currency
Foreign companies for temporary resi-
dence for foreign staff
Terms No limit No limit Within 20 years 50-70 years
Land use right No No No Yes
Sale allowed outside China No No No Yes
Standard of building Normal Higher Higher Highest
Permit to transfer, sublet, or Yes to individuals' Yes to individuals' housing No sublet Yes
mortgage housing, transfer back to
No to foreign companies' housing No mortgage ANTHONY GA
seller only if discount
housing No mortgage business
No work units' housing
No mortgage business
Price policy Within the highest limit Within the highest limit, reference to Discretion Market price
international market
Source: Shanghai Statistics Bureau.

population purchases commercial housing, mainly private entrepreneurs and people

with relatives overseas. Private entrepreneurs have to find accommodation in the
housing market because no organization has assumed the responsibility of providing
it for them. Other people who have overseas relatives enjoy the privilege of selecting
housing and quite often get a discount because the government wants to earn foreign
currency.
Different purchasing policies exist for Shanghai's four types of commercial or
open-market housing (Table 3). First, ordinary commercial housing is sold to
permanent residents of Shanghai or to work units registered in Shanghai. The floating
population, which does not have household registration, has no access to the local
housing market. Overseas-remittance commercial housing is sold mainly to overseas
Chinese and their relatives or to permanent residents of Shanghai who have foreign
currency (or had foreign exchange certificates before they were discontinued in
1995). Because city government forbade exchange of foreign currency, ordinary
citizens could not obtain foreign currency and had no access to this type of housing
market. The other two types of commercial housing, however, are sold only to
foreigners or overseas Chinese. Commercial housing built on leased land is the most
flexible type of commercial housing. Units can be sold outside China and may be
sublet, mortgaged, and traded at market price, whereas the other three types of
housing are more or less controlled by the government. Building standards and
environmental amenity requirements increase from ordinary commercial housing to
commercial housing on leased land.
The situation in other cities may be different, but there is at least one common
characteristic—the housing market is rather fragmented. Certain people can gain
access to the housing market, while others cannot, because of either policy restrictions
or lower consumption ability. The new housing market has departed from the socialist
ideology that people should have equal access to facilities and housing in a classless
society.
The fragmented housing market means that although a market mechanism has
been introduced, it affects people's residential choice unequally. Those who can
afford to pay can make use of the new housing market to choose their residential
location, whereas others cannot. As a result, spatial differentiation of social groups
could emerge, depending on people's income and employment (state, collective,
private, or foreign joint venture) and whether they have overseas relatives.
Temporary Population
The most remarkable phenomenon in Chinese cities since the advent of economic
reform has been growth of the temporary population in large and medium-sized cities.
Two types of temporary population exist, the first being temporary residents (zanzhu
renkou). Unlike permanent residents (changzhu renkou), who have their households
registered in the city, most temporary residents have permits to stay in the city for a
fixed amount of time. Most are contract workers in factories or construction sites.
The other temporary population type is the transient or "floating" population
(liudong renkou). These are people who enter and leave the city within a few days,
weeks, or longer. They may be travelers, businesspeople, or job seekers. The transient
population normally is not reported in a city's statistics, whereas temporary residents
are. The number of temporary residents may be as large as 20 to 25% of the number of
permanent residents in some cities. In Guangzhou, the number of temporary residents

is 38% of the number of permanent residents (Zou, 1990). In the Shenzhen Special
Economic Zone in 1991, there were 432,000 permanent residents, but as many as
766,000 temporary residents, accounting for 63.9% of the official population in the
SEZ (Shenzhen Special Economic Zone Yearbook, 1992). Some temporary residents
can become permanent residents after staying in the city for a certain period of time.
The construction industry employs the largest share of the temporary population,
followed by retailing, especially individual retailing enterprises located on the street.
The Institute of Urban and Rural Economic Development in the Ministry of
Construction has conducted a detailed study of the characteristics and problems of the
transient population in large cities (Li and Hu, 1991). This study found that there has
been a rapid increase in the transient population in the large cities, and the transients
are staying for longer periods of time than before. Most came to work in the cities,
either as self-employed individuals or as employees in the building and retailing
sectors. Most are from villages, and they mainly are males with little education. The
transient population can exist because the household registration system no longer
can effectively restrict the number of nonregistered people in the city in the aftermath
of economic reform. Nonregistered people can bypass the household registration
system by obtaining their daily necessities from the free market. The presence of the
transient population is alarming in some of the large cities; it is associated with an
increased crime rate and with overloaded transport, infrastructure, and housing in the
city, because provision of these services is based mainly on the number of permanent
residents.
THE EMERGING INTERNAL STRUCTURE OF CHINESE CITIES
Economic reform has disrupted earlier mechanisms shaping the internal structure
of Chinese cities, which thus no longer is a product of the interaction among state
control, socialist ideology, and economic planning. New forces created from the
economic reform interact with one another in shaping the internal structure of
Chinese cities. These new forces are mainly the result of relaxed state control; reform
in ownership, management, land, and housing; and the pragmatism promoted by Deng
Xiaoping (in his words, "It doesn't matter whether the cat is black or white, it is a good
cat as long as it can catch mice"). New forces are eroding orthodox socialist ideology.
They are the product of neither a free market economic system that is familiar to
Western cities nor the pure socialist planned economy that existed for so long in
China, but a mixture of the two, with the effects of the free market system being more
visible. Although the three former forces still exert influences on the urban structure
of Chinese cities, their importance will decrease if economic reform continues and if
China moves toward a more free market economy.
Social Areas and Commercial Housing
Commercial housing is not evenly distributed over space but tends to locate in
peripheral areas where environmental quality is higher. Generally, redevelopment of
old areas with dense populations is more costly than new development because of the
necessity to relocate the original residents. Furthermore, land consolidation is
difficult and involves much negotiation, because there is a considerable amount of

private housing in the old urban area. As a result, commercial housing tends to cluster
in certain areas of the city, particularly at the urban fringe. As discussed above,
residents have different degrees of access to different types of housing. Through
uneven spatial distribution of housing, people are differentiated in urban space.
Factors influencing spatial differentiation include whether residents belong to work
units that can provide housing, where they are eligible to buy certain types of
commercial housing; whether they have overseas relatives; and whether they can
afford to buy housing. Shanghai serves as an example to illustrate the spatial
development of commercial housing in a Chinese city.
The city of Shanghai proper can be divided into two main parts: inside and outside
the Zhongshan Ring Road. The former is the old city, and the latter has been built up
since 1949. The Master Plan of Shanghai designates a set of ring expressways, of
which the Zhongshan Road is the inner ring. Inside the ring, land parcels are generally
small and compact, and large state enterprises and institutes are distributed along the
ring road. Environmental amenities are greater in the newly developed area around
the ring road than within the congested inner urban area. Housing on the open market,
especially units selling for foreign currency, are located mainly along Zhongshan
Road, in areas that were high-class residential areas before 1949 and where most of
the former communities of the international settlements were located. In the past,
these areas had more desirable physical and institutional conditions than other areas
in Shanghai (MacPherson, 1990). Spatially, open-market housing has clustered into
groups, forming subdistricts (Fig. 4). One such district is the Hongqiao economic
development district at the intersection of the ring road and the road leading to
Hongqiao International Airport. Since high-quality open-market housing is restricted
to certain social groups, as discussed in Table 3, inevitably concentrations of some
social groups will emerge.
Until now, the differentiation of residential areas involved only a very small portion
of the population and did not have severe social consequences. At present, although
differences in income are growing, the consumption capacity of the majority of the
population is fairly similar. The economic factor alone is not sufficient to cause the
formation of large-scale social areas involving most people. However, housing and
land reforms still are in the incipient stages. Housing rent has not been raised to such a
degree that it would force people to buy open-market housing. The work unit is still
the basic form of social organization, providing for the needs of staff and workers.
From 1980 to 1988, ordinary open-market housing sold to individuals at full market
price amounted to only 8,400 sq. m (2.34% of the total ordinary commercial housing
sold), whereas housing sold to work units amounted to 941,100 sq. m (57.28% of the
total) and that sold to individuals at discount prices to 663,400 sq. m (40.38% of the
total) (Shanghai Statistics Bureau, 1989). The proportion of housing purchased by
work units has been increasing since 1984 (Fig. 5).
Work units buy open-market housing and then distribute it to their staff, with the
latter sometimes being required to pay a certain part of the overall expense. This
allocation principle is very similar to the system in the prereform era, with needs,
position, and merit being the major consideration factors. The difference is that in the
Fig. 4. Commercial housing in Shanghai. Source: Modified from Shanghai Statistics Bureau (1989).
prereform era, work units had to allocate a certain budget, the so-called "nonproduc-
tive investment," to building living quarters. They had to construct or supervise the
construction of housing themselves, beginning with obtaining the construction site,
and acquiring construction materials, to monitoring the construction and providing
service facilities. Thus, efficiency was rather low. With housing reform, work units can
now buy housing constructed by property developers for their staff. The result is that
the close correlation between residential social area and location of employment
identified by Yeh, Xu, and Hu (1995) is diminishing.
Work trips have increased and have put pressure on traffic. The concept of self-
containment in residential development has been changed to "comprehensive devel-
opment" (zonghe kaifa). Comprehensive developments usually are large and are
organized by a municipality's development companies. The development company
acquires rural land, pays compensation to the farmers, constructs residential com-
munities, and sells housing to various work units. Thus, facilities are built by the
municipality rather than the work units. However, the construction fund is collected
from the work units that are to be involved in the purchase of the housing.
Comprehensive development is a preliminary form of housing commercialization.
The main difference between comprehensive development and housing commercial-
ization under the new housing reform system is the nature of the buyers. For
comprehensive development, the buyer is the work unit, but for housing commercial-
ization, the buyer is an individual. Instead of residing in housing built by work units
Fig. 5. Sale of ordinary commercial housing in Shanghai. Source: Shanghai Statistics Bureau (1991).
adjacent to their work place, workers now must live in comprehensive development
projects that may be located quite far away from their work place. The development of
comprehensive developed housing projects and housing reform has weakened the role
of the location of work units in shaping the internal structure of the city. Work units no
longer determine directly where their staff and workers live. The location of workers
now depends on the location of the comprehensively developed housing projects
where the units purchased housing for their workers, and the units have little control
over the location of workers who can afford to buy their own housing.
Although differentiation of social areas currently is not obvious, the trend will
continue, together with socioeconomic reform and accompanying social stratifica-
tion. Earlier perceptions of residential quality now are reemerging. Even after many
years of socialist ideology, the distinction between "lower" and "higher" social areas
still is frequently employed in daily life in Shanghai. Such a mental map is based
largely on clusters of housing for blue-collar workers from northern Jiangsu province
and good-quality detached villas in the former colony quarters. The perception had
begun to fade in the generation born after the 1950s, but it is beginning to emerge
again, although based on different factors.
Land Use Restructuring and Urban Development
In the past, the internal structure of Chinese cities was influenced strongly by urban
planning and state investment. However, these are of diminishing importance when
there are more and more firms and factories owned by individual enterprises and
foreign investors. Although the City Planning Act was passed in December 1989, it
was not effective in controlling land development. It required the city government to
prepare a master plan but was broad in controlling site-specific development, leaving
much discretion to the building administration and local district governments. The
existing land use zones are so broad that disputes may occur between the applicant
and the authority that grants planning permission. The actual location, type, and
intensity of development may not be what the planners intended in the master and
detailed plans, but rejecting a proposed building is difficult. For example, a site zoned
for a public building may be used to build tall office buildings, regardless of whether
the site is suitable for that use.
In the past, most of the offices, shops, and commercial activities were owned and
operated by government departments. All nonresidential activities and industrial
lands were considered to be public building land. This differs from the concept of
public building land in a Western free-market economy, for most land considered to
be "public building" land in China is office and commercial land. Existing land use
zoning rules are overly general. Because there now is much more private and foreign
investment in the cities, land zoned for public buildings may no longer be under the
control of the city government. Government departments and state enterprises that
want to make more money may develop such land into commercial offices for higher
profits, and consequently, many office buildings and hotels seem to be erected
randomly in the city. However, if all public building land is developed into offices,
there will not be any land left for public facilities for sports, culture, and recreation.
Ever since the adoption of the paid land use system, land no longer merely
represents space for living and production. It acquires commercial value and becomes
a means for making a profit. Land can be a productive factor and can bring economic
return to the landowner. Theoretically, land is owned by the state, but in reality, there is
no clear understanding about the legal holder of property rights to a certain piece of
land. The demand for private land transactions is increasing and very often is beyond
the control of the government (land exchange transactions by both individuals and
work units on the black market have increased tremendously). However, exchange of
land use rights between work units is quite complicated. One form is barter of land for
housing. Some work units that occupied excessive amounts of land prior to economic
reform do not yet have the funds to build residences for their workers. Other work
units have money because their activities have been profitable—they have self-
generated funds, or they can find ways to escape the auditing system and use their
profits freely—but have not been able to acquire land to build housing because they
lack strong political connections. These different work units thus can cooperate in the
construction of housing. In such cases, the land users who have the land are making
money, but the government is not, because the land development tax is not paid.
Changes in land use also have accelerated as a result of such transactions. It is difficult
for urban planning to control these changes, because Chinese cities do not have
zoning legislation.
Most land use changes are from residential and industrial to commercial use.
Because of the lack of data, we are not able to determine the rate of such changes;
however, they can be readily observed along the main streets of most cities where
offices, hotels, and restaurants have replaced housing since 1978. In Shanghai, small
companies redeveloped old two- to three-story flats (that previously were perceived
as high-class detached private housing) into offices. Along Zuopu Road in Shanghai,
pubs and inns quickly began taking over ordinary housing after Deng Xiaoping's tour
of the southern cities in 1992, when he urged that the pace of economic reform be
quickened. It is now difficult to judge the use of buildings by their appearance. Land
use in cities now is becoming more chaotic and mixed, whether one studies buildings,
street blocks, or districts.
Special Economic and Technical Development Zones
One significant feature of the post-1978 internal structure in Chinese cities is the
introduction of a new kind of land use zone, the economic and technical development
zone (ETDZ). The rationale is to attract foreign investment, to restructure industry
and foster new high technology, and to relax government control to raise incentives
and autonomy in decision making. The ETDZs are very similar to "enterprise zones"
in the United Kingdom, where special policy is provided to stimulate languishing local
economies (Hall, 1981).
In the new zones, city government would provide not only special policies relating
to tax, labor management, land use rights, and development applications, but also
comprehensive development of infrastructure. Municipalities usually select a large
piece of land, delineate its boundary, get approval from the State Council, and apply
for "preferential rights." The location of the ETDZ usually is on the outskirts of the
city because more open land is available, the land parcels generally are larger, and
only a few farmers are involved. In the old urban areas, there are many land users,
making land acquisition more difficult. If there is more than one ETDZ, they usually
have different functional specializations.
Shanghai has announced three ETDZs—Minghang, Hongqiao, and Chaohejin. The
Minghang ETDZ is 30 km away from the city center and occupies 2.13 sq. km.
It is an industrial zone accommodating light industry, textiles, electronics, precision
instruments, chemicals, and metal processing industries. Hongqiao ETDZ is located
west of the city, close to the city proper and to Hongqiao International Airport,
occupying 0.65 sq. km. It functions as a tertiary economic zone accommodating
banks, trade centers, offices, flats, hotels, commercial plazas, and foreign consulates.
Chaohejin ETDZ is 11 km from the city center and will occupy 5 sq. km when it is
completed. It accommodates high-technology companies, such as micro-electronics,
biochemistry, new materials, and fiber optic communications.
Ever since the State Council issued two administrative regulations in May 1990
("Provisional Regulations for Selling and Transferring of the Right to Use State
Owned Land in Cities and Towns" and "Provisional Regulations for the Development
and Management of Land Parcels Invested in by Foreign Businessmen"), the pace of
land leasing has greatly accelerated. In 1990, the number of new economic and
technical development zones reached 1,874 (Zou, 1992). Economic development
zones have been established by various levels of government, even in small cities and
towns. The area of ETDZs ranges from a few to tens of sq. km. The ETDZ is becoming
an important component of the internal structure of Chinese cities. It also has
profound implications for urban development control. The priority for local govern-
ment is to accelerate economic development and short-term growth, and leasing of
land will increase the local government revenues. Very often, development control is
relaxed in order to increase the attractiveness of the site for land development.
Squatters and Slums
The large number of temporary urban residents creates the potential for the
emergence of squatter settlements and slums like those in most Third World cities that
have experienced substantial rural-urban migration. Heretofore, there is little or no
evidence of the existence of squatter settlements or slums inside the city proper. A
controlling factor is the nature of the labor market, which is not totally free, but which
is a quasi-market to which not everyone has access. The workers are not recruited
individually but as teams from rural counties. The work units that recruit the
temporary laborers must provide housing for them, usually alongside the construction
sites or in warehouses and guardhouses. The workers also may reside with relatives in
the city. The temporary populations are well organized, and the housing is often well
maintained, without negative environmental impacts. The highly centralized society
makes building illegal buildings on state-owned land quite difficult. Any that do
appear simply are demolished by the city government.
Nevertheless, there is a problem of land squatting and temporary housing at the
urban fringe. Because rural land is collectively owned by farmers, the state cannot
control it effectively. Before economic reform, through socialist ideology and tight
administrative control, it was impossible for farmers to change rural land that was
designated as "vegetable land" into a nonagricultural use unless it was acquired by
work units that received approval to do so from the city government. At present, the
urban fringe is actively producing agricultural products that can be sold in the free
market. However, after the reform was introduced in urban areas, farmers also found it
very profitable to convert their agricultural land into warehouses, factories, and
housing for the temporary population. The urban fringe thus is becoming an area of
extremely mixed land use and absence of effective planning and development control.
With the increase in temporary population, particularly workers lacking access to
urban housing, the urban fringe has a high potential for creating slums and other
obstacles to future urban expansion.
Service Facilities and the Future CBD
After the introduction of rural economic reforms, farmers have been allowed to sell
their agricultural products in the free market in urban areas after they fulfill their
government quotas. Therefore, in the 1980s, most cities in China experienced a boom
in farm-product free markets (nongmao shichang). In the beginning, these markets
were small and usually were located on street corners. Later, through competition,
several large markets were formed and slowly evolved within a hierarchy ranging
from neighborhood and district markets to city wholesale markets.
At the same time, the system for distributing industrial products and daily goods
changed, too. The establishment of markets for manufactured goods led to increasing
demand for offices, services, shops, and various other facilities. The number of busi-
ness and commercial buildings is increasing, as is the occupation of commercial land.
People no longer are satisfied with the former way of allocating daily necessities
and want to select and compare commodities to suit their consumption abilities and
tastes. As a result, special shops are emerging with locations that are highly dependent
on accessibility.
The profits of hotels in Shanghai also depend largely on their location. Hotels
located on class-I land are much more profitable than those located on lower-class
land (Shanghai Statistics Bureau, 1989).
Business and special services require face-to-face interaction, and an agglomera-
tion economy is emerging. Production activities formerly governed by government
departments and offices now are shifting to business offices. The latter show a strong
tendency to agglomerate in certain areas within the city. Nevertheless, as discussed
above, the effect of land value is just beginning to be apparent, and the internal
structure still is in a transition period.
At present, there is no visible evidence in Chinese cities of the presence of CBDs
similar to those in the West. Newly constructed office buildings in most cities are
scattered and show no pattern of clustering. In Beijing, office buildings are widely
scattered in different parts of the city, perhaps because the central area is occupied by
the imperial palace, Tiananmen Square, and administrative organizations. The scat-
tered distribution of office buildings reduces the efficiency of contacts, as travel from
one office building in one part of the city to another office building in another part of
the city consumes so much time. Moreover, the situation is worsened by congestion
and the frequent need to change transportation modes in travel from one part of the
city to another.
However, with the potentially high land value in the city center, redevelopment of
the central area into a CBD will be possible. Clearly, given the relatively low land
value of existing old housing, it will be more profitable to change existing residential
land use into commercial uses. Through urban redevelopment in the future, it may be
possible to witness the emergence of CBDs in Chinese cities. Along Nanjing Road,
one of the most important commercial streets in Shanghai, urban redevelopment
already is taking different forms. Old buildings, rather than being renovated, are
pulled down in blocks and new commercial buildings are constructed. Trade markets
and newly constructed commercial complexes are scattered all over the built-up area
of Beijing, and two new CBDs most likely will form in the future (Hu, 1993) (see Fig. 6
for approximate locations). In Shanghai, the Lujiazhui Financial and Trade District in
the Pudong New Area is planned to be one of the CBDs of the city. Its design and
layout are quite similar to the Central District of Hong Kong, with concentrated high-
rise office buildings, trade centers, and a television tower, symbolizing a new era of
Chinese urban spatial structure. Rather than government buildings, squares, and
monuments, which heretofore have dominated the central area of Chinese cities,
office buildings similar to those in Western cities are beginning to appear.
Urban Sprawl
For several reasons, urban sprawl has appeared in Chinese cities since economic
reform. A primary reason, as we have seen, is because of the difficulty of finding land
for development in the city center. Most land in the city center has been occupied by
work units. Acquisition of land for leasing or the development of commercial housings
in the city center involves much time-consuming bargaining. State work units belong
Fig. 6. Location of trade markets and newly constructed commercial complexes in Beijing. Source:
modified from Hu (1993).
to different sectoral departments. Compensation and relocation of land in other

locations may not satisfy the requirements of these departments because many work
units are not profit-oriented. Redevelopment of old private housing in the old city area
also involves many problems; private housing owners require increasing amounts of
compensation.
Second, requisition of rural land at the urban fringe is easier. Suburbs have much
unoccupied rural land that can be acquired according to the Provisional Regulations
of Land Requisition for State Construction, promulgated by the State Council in 1982.
Compensation costs are low, and relocation of people and activities is easier.
Third, "comprehensive development" (zonghe kaifa) has been encouraged since
1978. It is much more feasible to realize such development, and resolve the attendant
compensation problems, when a large tract of land is acquired on the urban fringe.
Fourth, the city is administratively divided into different districts. With the new
reform in which land has value, suburban district governments are willing to improve
transportation in order to direct development to their districts, especially when they
are competing with the city center district for development. Suburban land is much
cheaper and more abundant than land in the city center; thus, with improved transport
and basic facilities, developers of new industrial and housing projects are willing to
locate at the urban fringe.
Urban sprawl increases commuting distances and aggravates urban traffic prob-
lems. As a result, city governments must provide more roads and public transport.
These externality expenses are not covered by the project developers, who pay only for
the land acquired from landowners. Thus the city as a whole has to bear the cost of
improving the roads and transport facilities.
CONCLUSION
The dominance of ideology, state control, and economic planning on urban

planning and development in China, which strongly influenced the internal structure
of Chinese cities, has been diminishing gradually since economic reform in 1978.
Given the declining role of state enterprises in the economy and investment in cities,
the introduction of housing and land reform, and the opening of China to foreign
investment, the state and centrally planned economy will play a smaller role in
influencing the development of cities. These new developments are affecting the
internal structure of cities and leading to the restructuring of their land use to reflect
market forces rather than the previous state control of land use allocation based on
central planning. As a result, there is clustering of open-market housing, forming new
social areas; restructuring of land use and urban redevelopment; and designation of
new economic and technical development zones for the purpose of attracting foreign
investment.
With the large temporary population in the cities, housing problems are growing
more acute. If they are not handled properly, there is the possibility of the emergence
of slums and squatters settlements, which plague many Third World cities that
experience rapid rural-urban migration.
The most important force influencing the evolving internal structure of Chinese
cities at present (and will to an even greater extent in the future) is land reform, by
which land value is introduced for the first time in socialist China through charging
land use fees and sales of land use rights. With a price attached to land, its use is
beginning to be restructured in a way described in Alonso's (1964) land rent theory.
Land use will be restructured according to the ability to pay locational rent. At
present, the effect of locational rent on land use restructuring is not very apparent in
Chinese cities because of an imperfect land market. As the land market improves,
locational rent will have a profound influence on the internal structure of Chinese
cities.
Another important effect of land reform on Chinese cities is the revenue that it
generates for improving infrastructure, which is much needed in Chinese cities. With
revenue generated from land use fees and sale of land use rights, city governments will
experience a substantial increase in financial resources to improve urban infrastruc-
ture, which was not possible in the past. As land now has a price, any improvement in
accessibility and facilities will increase the price of land, which in turn can generate
more income as a result of improvements in the urban infrastructure to the benefit of
the city's residents.
With rapid economic development of the cities, there is much need for developable
land to meet the demand for offices, businesses, hotels, shops, and commercial
housing. As most of the city center is intensively used and urban redevelopment is
expensive and time-consuming, new development is found mostly in the suburbs or
new areas of the city where there was limited development in the past. New
commercial housing estates and economic and technical development zones are
being constructed around the city center. Together with the increasing separation of
place of work from place of residence and because of reduced reliance on state
enterprises to provide jobs and housing, urban sprawl has increased the level of traffic
in the city and aggravated traffic congestion.
Planning and development control are needed to guide anticipated land use
restructuring in the city center and to contain urban sprawl in order to mitigate
environmental and traffic problems. Unfortunately, urban planning and development
control are not effective at a time when they are most needed. The urban planning
system in China was developed mainly to serve prereform central economic plans,
when state control over development was strong. However, it is not now dealing
effectively with the eroding role of the state and the increasing role played by the free
market in urban development.
The City Planning Regulation was enacted in 1984 and became the City Planning
Act in December 1989. Nearly 300 cities have prepared master plans according to the
requirements of the City Planning Act. However, the importance of urban planning in
development control, as noted above, is declining for several reasons. One is that the
old-style master plan is inadequate for the new situation. For a long time, the master
plan was viewed as a blueprint for construction, being implemented mainly through
administrative instructions controlling investment allocations and availability of
production resources. The master plan was complemented by an industrial project
feasibility study, industrial location study, factory layout design, and detailed layout
plan. Government agencies prepared these plans to achieve the urban spatial structure
depicted in the master plan. Without the implementation of these plans, the spatial
development pattern envisaged in the master plan cannot materialize. Since the
introduction of the market economy, particularly land and housing markets, invest-
ment can be initiated by individuals, joint ventures, and foreign companies. It is
unnecessary and even impossible for the government to select sites and design layouts
for these projects, which lie beyond the state's purview. Enterprises make their own
choices. Thus, the lower-level administrative plans that were quite effective in
supporting master plan implementation are no longer effective, leaving the master
plan as an ideal that cannot be realized.
The second reason for the diminishing importance of urban planning in guiding
urban development is that master plans leave the user too much discretion in deciding
on land uses. This was not a problem before economic reform, because society was
organized through the work unit system and the nature of the work unit more or less
decided its land use. Since the introduction of economic incentives, however, eco-
nomic considerations have become increasingly important in land use decisions.
Uncontrolled land use change is becoming a serious problem. For example, schools
that are located in the central area of the city lease their buildings to companies for use
as warehouses and shops. A school may even tear down the wall around its campus,
which was a typical component of the landscape under the planned economy, in order
to build shops along the streets. Yet the land use under such modified arrangements
still is designated as educational and cultural. The master plan cannot control these
land use changes, even though the problem has been debated for several years in
Chinese newspapers.
The third reason is that economic development receives the highest priority in the
government agenda. City governments attempt to attract as much investment as
possible and compete with each other by relaxing control and providing special
inducements to attract investment. Local planning authorities find it difficult to resist

the inclination to designate special economic development zones and to resist the
pressure from other authorities to accelerate construction. In some coastal cities,
planning lags behind economic development. Very often a plan is prepared after the
key projects already have been approved. Furthermore, the master plan always is
changing to meet new central government policies and local economic development
goals. For example, the master plan of Shenzhen Special Economic Zone has changed
more than eight times since it was prepared in the early 1980s.
Planners also have experienced difficulty in adjusting their thinking to the new free-
market mechanism in land use allocation. It will take time for them to learn how an
urban planning system works in a market economy, where there is a price for land.
Furthermore, there is an urgent need to devise a new system of development control
to fill in gaps in the existing urban planning system. Some cities, such as Shanghai, are
experimenting with a new method of development control on the basis of detailed
development control plans (kongzhixing xiangxi guihua), which specify development
intensity (such as plot ratios), site coverage, and permitted land uses.
There also is an urgent need to train more planners to revise plans and implement
development control in cities that are changing rapidly as a result of the new forces
shaping the internal structure of cities. The internal structure of Chinese cities, as in
the country as a whole, is at a transitional stage as economic reform proceeds.
Whether Chinese cities will be orderly or chaotic will depend on how the obsolete
planning system adjusts to the new forces and processes shaping the cities.
At present, the housing and land reforms generating these forces and processes are
small in scale and affect only a small number of people. Most residents still rely on
housing provided by their work units. Even given substantial change, it is unlikely that
Chinese cities will resemble Western cities in terms of their internal structure in the
near future. However, it is another matter entirely over the long run, to the extent that
China carries out further economic reform and allows the free market to play a more
important role in its economy.
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INTERNAL STRUCTURE OF CHINESE CITIES

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Anthony Gar-On Yeh and Fulong Wu

FORCES SHAPING THE INTERNAL STRUCTURE

In socialist countries, ideology plays a crucial role as a social integrator providing

INTERNAL STRUCTURE OF CITIES BEFORE 1978

organization of the city through self-contained communities based on work units.

the commodity economy (shangpin jingji) were reintroduced. Economic reforms

The Open-Door Policy

NEW FORCES SHAPING THE INTERNAL STRUCTURE

Economic reforms, particularly the introduction of foreign investment, the com-

Diversified Investment Sources

TABLE 1.—STRUCTURE OF INVESTMENT—SOURCES OF FIXED ASSETS

1957 1978 1980 1985 1990 1991

State budgetb 88.2 62.2 44.7 16.0 8.7 6.8

Declining Importance of State Enterprises

Opening the Land Market

the price is set by the market forces of supply and demand.

TABLE 2.—LAND MARKETS IN CHINA

Market type Participants Methods of transaction Price of landa

Land ownership Fanner (seller) Acquisition Acquisition fee

Sale of real estate Price = housing price - construction cost - interest-profit-taxes

Opening the Housing Market

Housing reform is a gradual process. Many theoretical controversies exist regarding

TABLE 3.—COMMERCIAL HOUSING IN SHANGHAI

Type: Ordinary commercial Overseas remittance commercial C o m m e r c i a l housing C o m m e r c i a l housing

Permanent residents of Shanghai who

Terms No limit No limit Within 20 years 50-70 years

Land use right No No No Yes

Sale allowed outside China No No No Yes

Standard of building Normal Higher Higher Highest

Source: Shanghai Statistics Bureau.

population purchases commercial housing, mainly private entrepreneurs and people

permanent residents in some cities. In Guangzhou, the number of temporary residents

THE EMERGING INTERNAL STRUCTURE OF CHINESE CITIES

Social Areas and Commercial Housing

difficult and involves much negotiation, because there is a considerable amount of

Land Use Restructuring and Urban Development

Special Economic and Technical Development Zones

Squatters and Slums

Service Facilities and the Future CBD

to different sectoral departments. Compensation and relocation of land in other

The dominance of ideology, state control, and economic planning on urban

inducements to attract investment. Local planning authorities find it difficult to resist

, 1990, Zhongguo Chengshi Sishinian(China:Forty Years of Urban Develop-

Nanjing's Urban Spatial Structure), Research Report, Nanjing University (in

Tongji University, 1984, Chengshi Guihua Yuanli (Principles of Urban Planning).

World Planning Review, Vol. 13, 277-296.

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